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Beyond Bank Loans - 6 Alternative Ways To Get Your Business Funded

5:51 PM

Plenty of aspiring entrepreneurs have an idea of the kind of business they’d like to set up; however, they lack the capital, to begin with. Funds can be tough to secure, not only for new enterprises but for well-established businesses as well.

Apart from bank loans, there are other ways to finance your business. HSBC, which is one of the largest financial services organizations and best business banks in the world, shares alternative options for financing your startup.

How to Finance Your Business

1. Crowdfunding

There are crowdfunding sites that let businesses pool investments from several investors instead of just looking for a single investment.

Before dealing with these sites, make sure to read the fine prints because there are some sites asking for payment-processing fees. Know the ins and outs of the site before launching a campaign or making an account.

2. Business Account

If you want to trade with organizations with great financial status, opening a business account will be your best option. You can also take advantage of export and import finance without the underlying documentary credit.

If you choose to sell on open account terms, receivable finance products will deliver the financing or collection services you need.

Furthermore, supply chain solutions will help you in optimizing your working capital, reducing costs, and gaining better control over receivables.

3. Factoring or Invoice Advances

Invoice factoring is a process wherein business owners sell their accounts receivable or invoices to a third party, known as the factor, for an upfront percentage of the total value.

If the factor collects the outstanding payments, it returns the remainder to the client, less the pre-determined fee.

This alternative method of financing will help fuel business growth by giving the necessary funds to keep operations going while waiting for clients to pay the outstanding invoices.

Factoring is an excellent way for entrepreneurs to have a capital for a low rate. But since there are plenty of factoring services available, it is crucial to choose the best factor to work with; otherwise, this form of financing can be really risky.

4. Grants

If your business focuses on research or science, you can get grants from the government. Certain banks, nonprofits, and companies are also offering grants for businesses engaging in research and development.

Since grants are not expected to be repaid, they are not just given to anybody. Most organizations have strict reporting measures and guidelines to make sure that the recipients will use the money wisely.

Finding and applying for a grant is not easy, so seek help from a reputable financial professional to assist in the process.

5. Venture Capitalists

Venture capitalists are individuals investing in a business, providing capital for expansion or start-ups. Most venture capitalists are investing in businesses with a high potential for growth (and risk).

An investment from venture capitalists is a form of equity financing wherein the investors will offer funding in exchange for equity positions in the company.

This is a great financing option for non-established businesses that weren’t able to secure loans from financing institutions due to a lack of collateral; a high-risk profile or insufficient cash flow.

6. Guarantees

With the use of guarantees and letters of credit, you can conduct your business with confidence.

An HSBC guarantee, for instance, can allow you to negotiate favorable terms with both suppliers and buyers whilst addressing all your financing needs. Use standby letters of credit if your buyers and suppliers are less comfortable with guarantees.

Finding the funds necessary to launch and grow a business is among the biggest challenges for entrepreneurs. Apart from primarily applying for bank loans, consider using these alternative methods for getting your business funded. Most importantly, work with a financial professional if necessary.

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